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Recently released World Gold Council numbers show that global gold demand exceeded more than $200 billion last year for the first time -- but it is the WGC's claim that China could possibly replace India as the world's largest gold market in 2012 that seemed to grab the attention of many market watchers.

At the moment, India continues to boast the world's biggest gold market, with demand of 933.4 tonnes in 2011, of which more than half was for gold jewelry, according to the latest data from the World Gold Council.

But in the second half of last year, the WGC notes that the rise and fall of the rupee and domestic swings in the gold price had an impact on both India's jewelry and investment demand, which fell 33%.

And according to a Bloomberg news survey of analysts, brokers, and jewelers, gold imports by India may drop by a median estimate of 7% to 900 metric tonnes this year.

As a result, China could be set to take over as the largest gold market in the world for the first time in 2012, the World Gold Council noted last week as it released gold demand trends and figures for 2011.

In 2011, China's annual demand of 769.8 tonnes represented a 20% year-on-year gain, thanks to increases in both jewelry and investment. China is already the world's top producer of gold.

"Looking particularly at Asia, there was a major boost to the overall figures from the increase in Chinese demand, which is a trend that we see continuing over the next year. It is likely that China will emerge as the largest gold market in the world for the first time in 2012," says Marcus Grubb, Managing Director, Investment at the World Gold Council.

The largest rise was in investment, where demand of 258.9 tonnes with the value of RMB84.5 billion represented a 69% increase on 2010. Jewelry demand in China increased every quarter of last year and was the largest single jewelry market worldwide for the second half of 2011.

The China Gold Association reported earlier this week that China's gold consumption climbed 33% in 2011 to 761 tonnes, of which more than half was jewelry. The country's purchase of gold bars jumped 50% last year.

Looking forward, the WGC says it is gold's role as an inflation hedge that should reinforce its appeal in countries like China, which are still affected by high inflation.

So, when is China likely to become the number one gold consumer, and what impact will this move have on the market?

Carl Firman, a metals analyst at VM Group in London says China may already be the biggest gold consumer but proving it is problematic, as a result of transparency issues.

"What we do know is that production and to some extent estimated imports of gold are vastly more than estimated end-user demand. This implies that gold is being accumulated by private and, possibly, public entities," he says.

Firman expects that China and other emerging markets are now an integral support to the gold price.

"The spending power of the growing middle classes and debased currencies does lend itself to stores of wealth, such as gold. The luxury markets – jewelry – also benefit," he says, adding that investment is likely the key driver of China's gold demand at the moment.

"The gold and jewelry sector is one of the few sub sectors of the Chinese retail space that has the potential to see new highs for the stocks in the next few years, as the Chinese disposable income continues to rise," Eddie Tam, CEO of Central Asset Investments told CNBC.

For other analysts, China's move towards being the top global gold consumer in 2012 may not yet be solidified.

"But with the new order, prohibiting private gold transactions in China outside the Shanghai Exchanges, appetite for gold might dampen," he noted. At the same time, he notes, the price will not collapse, as low interest rates make it difficult to find alternatives.

The WGC also notes that although both China and India are expected to continue to generate the lion's share of consumer demand, signs of slowdown in China and the "increasing maturity" of the market may lead to a slowdown in recent growth rates. In India, the WGC points to a lower number of auspicious days in the 2012 Hindu calendar as one factor that might temper gold demand.

Whichever country ends up boasting the highest gold demand in the world in 2012, China and India were responsible for more than half of global jewelry demand last year and just under 50% of all demand, and both countries remain the "cultural heartlands of gold," says the WGC.

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